Increase in prices Essay Example | Topics and Well Written Essays - 1000 words

Increase in prices - Essay Example besides inflation cannot always be termed as bad if seen in terms of higher(prenominal)(pre titulary) money incomes. The higher prices of everything would result in higher receipts for resource suppliers and hence a growth in their income levels. pompousness usu exclusivelyy results in the measuring of vivacious to decline because it now costs more(prenominal) to buy the aforesaid(prenominal) amount of goods and services. However there are some cases where the travel prices do not necessarily fee-tail declining living standards. Following are some of the factorsNominal Income If the economy is suffering from a period of rising prices and at the same time there is a commensu yard rise in the level of income, this would not lead to a decline in living standards. This is because the increase in prices is offset by the proportional increase in income, resulting in an unchanged con gistption pattern. This is assuming everything else is constant.Re al income This is the income that is adjusted for inflation. In cases where the nominal income is rising but the rate at which it is growing is less than the inflation rate, it would not lead to a boost in the standard of living. This is because the inflation will erode the purchasing power of money and muckle will be disbursement the extra income in the purchasing of the same amount of goods and services. ... Since almost all countries are plagued by inflation, people look at their real income to determine their purchasing power quite a than the nominal income.Tax structure In an economy where there is a favourable tax structure, the spending patterns are high. This is due to the fact that even though inflation is prevalent, people still have more of the disposable income left over after their regular purchases. The spending patterns have a multiplier result and in turn lead a general boom in the economy. The excess spending actor people are expecting more goods and services signalling to the producers to produce more. Since the level of production needs to be increased, producers would demand more promote and more production would thus lead to an increase in the national income of the country. To sum it up, tax breaks given to the people will not lead to a decline in the standard of living even in the presence of rising prices.Labour If the economy has more of the skilled labour as compared to the unskilled workforce and the labour productivity is high, this would also result in a higher standard of living. This is attributed to the fact that since the labour is skilled it would demand higher wages for each extra product it produces. Since the employers would want to retain the skilled labour, it would have to pay higher wages otherwise the labour would disclose jobs elsewhere. The higher wages would cause more spending and this would maintain or boost the standard of living even though the economy might be in the grips of inflation.Interest rate Th e level of take rates in an economy is an important factor in determining the spending patterns of the consumers. If the interest rate is low, then borrowing is